Lift Dollar (USDL) Risk Disclosure

General risks associated with Virtual Assets

Not a legal tender or backed by a government

Lift Dollar (USDL) is not legal tender and is not backed by any government.

No central bank or other official support

There is no central bank that can take corrective measures to protect the value of USDL. 

Irreversible transactions

Each virtual asset has its unique deposit address. If a user accidentally deposits any other Virtual Assets into the address, those Virtual Assets would be lost forever and cannot be recovered. Likewise, if a user accidentally types in a wrong withdrawal address, once the withdrawal request is processed and the transaction is completed from the exchange’s end (once the Virtual Asset leaves the relevant wallet system), the transaction is irreversible, and the withdrawn amount cannot be retrieved by the user. Finally, and for the same reason, Virtual Assets which are stolen as a result of a cyber-attack, as well as Virtual Assets where the private keys are lost, destroyed or stolen, may not be recoverable.

Acceptance as payment

There is no assurance that a counterparty who accepts a Virtual Asset as payment today will continue to do so in the future. Changes to laws and regulations might prevent a counterparty from accepting a Virtual Asset as payment. Virtual Assets not being a “legal tender”, a counterparty could refuse to accept them as a means of payment.

Liquidity

Virtual Assets can at times become “illiquid,” which means there can be a scarcity of persons who are willing to trade at any one time. Thinly traded or illiquid markets have potential increased risk of loss because Virtual Assets can experience high volatility of prices and in such markets market participants may find it impossible to liquidate market positions except at very unfavorable prices. There is no guarantee that the markets for any Virtual Asset will be liquid or permit you to establish or liquidate Virtual Assets positions when you want, or at favorable prices, other than Paxos International’s redemption process for USDL. 

Complexity

The features, functions, characteristics, operation, use and other properties of any Virtual Asset and the software, networks, protocols, systems, and other technology (including, if applicable, any blockchain) used to administer, create, issue, transfer, cancel, use or transact in any Virtual Asset may be complex, technical or difficult to understand or evaluate. Additionally, Virtual Asset platforms commonly rely on complex infrastructures.

Irrational market forces

Virtual Assets may be susceptible to irrational loss of confidence or market forces (e.g. as a result of any misleading statements or rumors), which could cause a collapse in the demand relative to supply without a reason anchored in reality. Additionally, it may not always be clear why the market in respect of a Virtual Asset is moving in a particular direction.

Financial crime risk

Virtual Assets provide a higher degree of anonymity for their holders and makes it more difficult to trace them compared to conventional assets, which can lead to an increased risk of Virtual Assets being used for, or being connected to, financial crime (which includes (i) fraud or dishonesty; (ii) money laundering such as the handling of proceeds of crime; (iii) the financing of terrorism; or (iv) dealing with sanctioned persons or breaching economic sanctions).

Cyber-attack risks

The non-tangible nature of Virtual Assets and their heavy reliance on technology may make them subject to an increased risk of cyber-attack and theft. Virtual Assets are susceptible to specific types of cyber-attacks as a result of their network architecture. 

Technology risks

Trust and confidence may collapse in Virtual Assets because of, but not limited to, unexpected changes imposed by the software developers or others, changes introduced by the relevant authority or regulator, the creation of superior competing alternative Virtual Assets, or a deflationary or inflationary spiral. Confidence may also collapse because of technical problems: if the anonymity of the system is compromised, if money is lost or stolen, or if hackers or governments are able to prevent any transactions from settling. There may be no mechanism for the recovery of lost or stolen Virtual Assets. Any Virtual Asset or technology may change or otherwise cease to operate as expected due to a change made to the underlying technology, a change made using features or functions built into the underlying technology or a change resulting from an attack. These changes may include, without limitation, a “fork” or “rollback” of a Virtual Asset or blockchain. Finally, due to their nature, technological difficulties experienced by Virtual Asset-service providers may prevent access or use of Virtual Assets.

Regulatory risk

Regulatory changes or actions by the FSRA, or any other regulator or relevant authority, may adversely affect the access to, use, transfer, exchange, or value of Virtual Assets.

Tax risk

Virtual Assets gains are typically subject to tax, depending on the client’s country of residence, and may impact a client’s tax footprint or optimization. If a client has any further tax concerns pertaining to Virtual Assets the client is best advised to visit the relevant country’s tax website or consult their own financial, investment, tax, or legal adviser.

Risks associated with Paxos International products and services

Internet trading risks

There are risks associated with technology service providers which enable Customers  to receive or redeem USDL. Although Paxos International carefully chooses its providers and the solutions it uses, Customers would still be exposed to risks which include, but are not limited to, the failure of hardware, software and hacking through internet connection. Customers may experience communication failures, disruptions, errors, distortions, or delays when trading due to network failure from the Customer’s end, which might result in losses.

Risks of cyber-attack

Website Phishing Risk

Attackers may host a similar website which has a similar domain name as the Paxos International website. By sending phishing emails or chat messages, attackers may induce clients to access the phishing website where they would input their password or disclose other sensitive information, which could then be used by the attackers.

Official Account Phishing Risk

Attackers may create accounts with the same nickname and avatar as Paxos International employees on websites, social media pages or chat rooms. With these fake accounts, attackers may induce clients to disclose their passwords or other sensitive information.

“Remote Hacking” Risk

Customers can expose their computer or mobile device to remote hacking by unconsciously downloading viruses from the internet or other connecting devices. Hackers can then access and control a Customer’s device without the Customer being aware. In this case, a hacker might login to and operate a Customer’s trading account. If a hacker has obtained enough information for him to pass all security measures on the Customer Platform, and the system is tricked into considering the attacker as the legitimate Customer, the attacker would be able to transfer all funds or tokens in the Customer’s account to other addresses.

Weak User Password/”Brute force” attack risk

Customers sometimes use weak passwords to protect their  accounts. Attackers may attempt to login to the Customer Platform by attempting to guess a Customer’s password through trial and error, by enumerating weak or common passwords, or by using username password combinations leaked from other websites.

“Hard Forking” risk

A “hard fork” results in a Virtual Asset forked from the original one. Accepting the original Virtual Asset does not mean Paxos International automatically accepts any new Virtual Asset that is forked from the original accepted one. In such case, Customers will not be able to trade the forked Virtual Asset and need to withdraw it to other addresses for further action. During this time the price of the forked Virtual Asset might decrease.

Regulatory risk

Paxos International may be subject to supervisory or enforcement action by the relevant regulator which may result in suspension of the Customer Platform or in Customers being unable to have control or access over their Tokens for a period of time.

Exchange rate fluctuations

Stablecoins that are denominated in US Dollars expose non-US Customers to risks associated with fluctuations in the relevant exchange rate.

Depegging events

A depegging event is when the value of the stablecoin no longer matches the value of the underlying asset. This could result in a loss of some or all of your investment. 

In the unlikely event of an extreme market condition or other unexpected circumstances, there is a risk that there might be a mismatch between USDL liabilities (i.e., its token holders) and the reserve assets, which could result in a depegging event. However, it is highly unlikely for a mismatch affecting redemptions at par to occur due to the extremely creditworthy and liquid nature of USDL reserve assets as mandated by the FSRA.

Risks associated with specific types of Virtual Assets

LIFT DOLLAR (USDL)

USDL is issued by Paxos International. USDL is designed to be pegged to the US Dollar and collateralized with 1 USD in reserve for every 1 USDL issued. However, it must be noted that USDL is not subject to deposit insurance protection and the presence of that USD collateral does not mean that redemption of USDL is guaranteed. 

Ethereum (ETH)

Ethereum, created in 2013, is a decentralized, blockchain that also features smart contract functionality which when deployed, runs automatically to facilitate transactions or exchanges of assets of value. In relying on a Proof of Work consensus mechanism, Ethereum prioritizes network security and transaction finality over throughput. As a result, the Ethereum network suffers from congestion and/or high transaction fees at times. While this does not put assets at risk, it may lead to delays or higher than normal costs in completing transfers and transactions. From time to time, Ethereum upgrades the underlying blockchain software through what is known as a non-contentious hard fork. Technology risks may increase during an upgrade as a result of a bug or if a significant number of network participants do not adopt the latest version of the software. Smart contracts are self-operating, tamper proof and designed to execute specific actions once certain conditions are met. However, this also means that any human error or exploitable bug in the smart contract code cannot be reversed once executed.